India’s net direct tax collections have witnessed a drop in the early months of FY26, falling to ₹4.6 lakh crore by June 19, 2025. This development comes amid a significant uptick in tax refunds and slower advance tax payments, signalling possible strain in corporate profitability and broader economic activity.
According to data released by the Central Board of Direct Taxes (CBDT), India’s net direct tax collections have dropped by 1.4% compared to the same period in the previous year. This decline, amounting to ₹4.6 lakh crore, is largely attributed to an increase in tax refunds amounting to ₹58,385 crore, which represents a 58% year-on-year rise.
Gross direct tax collections reached ₹5.45 lakh crore, reflecting modest growth of just under 5%. The reduction in net collections, despite gross figures holding positive ground, raises concerns regarding fiscal consolidation efforts and budgetary management.
Advance tax receipts, which are viewed as indicators of expected future income, grew by only 3.9% for the April to June quarter. The underwhelming growth rate is seen as a reflection of weaker business outlooks for the first quarter of FY26. This data coincides with lower demand environments and rising expenditure across sectors, particularly in capital expansion projects, which are often eligible for tax depreciation benefits.
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The surge in tax refund disbursements aligns with the Finance Ministry’s directive to expedite the processing of returns. This year’s early push for refunds has released funds back to taxpayers at a faster pace, enhancing liquidity in the wider economy at a time when inflationary pressures remain elevated. While this is favourable for individuals and businesses, it has inevitably dragged down net tax collection figures.
TDS or tax deducted at source, especially from salaried individuals, has experienced a notable decline due to the revised personal tax structure introduced from April 1, 2025. These revised slabs, favouring net take-home salaries, have inadvertently contributed to reduced inflows under this component. This policy was designed to offer relief to wage earners and stimulate consumption, but has also reduced the volume of personal income tax collection in the short term.
Higher capital investments by corporates have translated into increased depreciation claims under the Income Tax Act, thus lowering immediate tax liabilities. This points to firms making long-term investments in infrastructure, manufacturing, and technology. While these deductions mean a shortfall in present-day collections, they also indicate forward-looking faith in India’s economic trajectory, even if current earnings have not matched projections.
While GST collections have sustained robust levels and banking credit has expanded, other indicators such as industrial production and export volumes have remained inconsistent. These mixed signals are echoed in the direct tax data, which captures both the caution exercised by businesses and changing spending behaviours among individuals amid financial market uncertainties.
This soft patch in net tax collection arises during a period when the government is increasing its expenditure on strategic infrastructure and defence outlays. Hence, the slowdown could challenge the fiscal roadmap unless offset by stronger indirect tax flows or recalibrated expenditure plans. Nevertheless, the Finance Ministry remains firm in its revenue targets for FY26, suggesting confidence in a recovery during the forthcoming quarters.
Officials believe the first instalment of advance tax is not always conclusive of full-year performance and anticipate better compliance and higher inflows in the second and third quarters as corporate books start reflecting clearer earnings trends.
Though refunds have brought temporary relief and potentially improved consumer spending capacity, they are unlikely to compensate fully for weaker direct tax flows. With uncertainties around global commodity cycles and geopolitical developments likely to linger, fiscal consolidation may require strategic trade-offs between direct and indirect revenue collection streams.
India’s net direct tax figures at ₹4.6 lakh crore for June 2025 fall short primarily due to accelerated refund disbursals and muted initial advance tax receipts. While capex-led depreciation and revised personal tax rates contribute to the reduction, the broader economic context suggests both opportunities and concerns. As the fiscal year progresses, the government will aim to balance speedier taxpayer services with sustained revenue mobilisation to keep fiscal targets on track.
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Published on: Jun 23, 2025, 2:09 PM IST
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